Do you know what an offshore account is? Unfortunately, many people know this expression as an illegal practice. However, it is necessary to know how they work and what their real goals are.
Having knowledge on the subject will help you understand the myths about it. After all, if we are talking about a financial mechanism utilized by so many successful businessmen throughout the world, the chances of it being illegal are negligible.
In this article we explain what an offshore account is and how to open one. Check it out below!
WHAT IS AN OFFSHORE ACCOUNT?
It is basically an account that is located in a country that is not the owner’s country of residence. Therefore, we can simplify the concept as an account owned in a foreign territory.
Thus, there are banks and other financial institutions that provide the service of opening accounts for people from other countries. They must follow the rules of the nationality of the institution, so they can be advantageous. This leads to a situation where the investor is not a resident of the jurisdiction in which the bank is while authorities of the home country have no range over the opened account.
Generally, those who seek this option also open an offshore company, with a linked account. This way, the company operates according to the rules of the chosen country, which can also be beneficial in tax terms.
There are several reasons to open an account. For example, to receive payments abroad, to facilitate currency conversion or even to pay less taxes. As each country has its own rules, depending on the location, the account holder can enjoy some advantages.
HOW DOES IT WORK?
As you have seen, an offshore account is one that is opened in another country. So its operation, in theory, is quite simple. The account holder opens it and uses it to make transfers, payments, deposits and other business.
It is common for offshore investors to look for a “tax haven” to open an account in. These are countries that do not tax income, or do so at a lower rate. In addition, they may also be the places that maintain secrecy in relation to the individuals or legal entities involved.
There are several examples of countries that can be considered tax havens, such as Panama, Cayman Islands, Hong Kong, Switzerland, Dubai, etc. When the tax rules are more beneficial than the country of origin, opening an offshore company may be interesting.
WHAT IS THE PURPOSE OF OFFSHORE?
Usually, those who open an account abroad aim to take advantage of tax benefits. Tax reduction, secrecy in transactions and ease of movement are common examples.
If there a fundamental financial mechanism to be having nowadays is an account that is outside of your country’s authorities. It has never been more crucial to place one’s assets in an institution that protects individuals from the claws of unfair taxation regimes.
However, there are other reasons to do so.
Those who trade in the currencies of other countries, for example, have greater freedom of exchange. If your company already imports or exports, receives foreign payments or offers services in different currencies the account can be a differential.
It is possible to make deposits, investments and transfers with other currencies, from Euros, to Dollars and Pounds. As conversion fees can be high depending on the country of origin, an offshore account makes the process easier.
With it, transactions can be made using the rules of the foreign country, which often already officially negotiate currencies. In addition, tax havens also tend to have more political and financial stability.
Another objective when opening an account outside one’s home country is to reduce interest rates. Those seeking financing, financial leverage and other types of loans can benefit from offshore rules.
IS IT ILLEGAL TO HAVE AN OFFSHORE BANK ACCOUNT?
The most recurring question on the subject is whether offshore account is illegal. The answer here is that, in theory, it is not illegal to do so. However, it is necessary to clarify a few points on the subject.
Malicious people can open an offshore company to carry out illicit operations with it. Whether for tax evasion, value evasion, money laundering and other criminal activities.
In these cases, the offshore account serves as a means or an instrument to do so. But attitudes do not determine that it is, in itself, illegal. In this sense, what must be understood is the intention of the person who is using it.
Remember this: avoiding paying taxes or taking advantage of tax rate reductions is not the same as tax evasion. If your operations are legal and you do not use the offshore account to disguise business, it is completely legal.
The problem is using the account in conjunction with shell companies to evade tax. This can be considered a fraudulent practice. Therefore, the ideal is to rely on professionals in the area to have a complete advice to ensure the regularity of their operations.
For that reason, clients are enforced to undergo due diligence processes that are able to confirm a legal background of the assets.
Moreover, any serious bank you contact would never let you be a client without asking several questions about your financial status. If a bank lacks the proper supervision of its held assets, protection is everything but guaranteed.
Every bank has its own rules, sure. But also every country has them! Be sure to understand thoroughly the current legislation of your current residence to be aware of all steps necessary. Only that way will you assure a lawful process towards your account.
Most developed countries, have enacted administrative regulations for non-residents holding offshore bank accounts. That’s why you should be aware if the bank you are contacting works with your current local legislation regarding tax reports as to avoid any wrongdoing.
HOW TO OPEN AN OFFSHORE ACCOUNT?
Now it is time to understand how to open an offshore account. For this, we have some tips that you should apply for more security. The first one we have already mentioned: count on a professional specialized in this matter.
RELY ON EXPERT ADVICE
Ideally, professionals should have contact with the country in which you wish to open an offshore account. Thus, he will be able to explain how the legislation works and how accounting is done according to local rules.It has been demonstrated how having an expert accompanying the process will increase the possibility for success, especially in countries with complex financial structures like Switzerland and Liechtenstein.
Only in this way will it be possible to understand if the decision is really beneficial and if the country chosen will bring tax advantages for you.
HOW TO OPEN AN ACCOUNT IN A TAX HEAVEN?
There are several ways to open an account in a tax haven. It all depends on which country and which bank you choose to open your account with.
The modality of the account also interferes, for example, if it is for an individualor a corporate bank account (legal entity).
It is difficult to say exactly what documents are required to open an account, as it all depends on the protocols required by the chosen bank.
However, in general, if you want to open an account as an individual in a tax haven, you will probably need:
- A certified copy of your passport;
- A recent certified copy of a utility bill or bank statement showing proof of address (no more than the last 3 months);
- A reference from your current bank, on bank letterhead, stating that you are a customer of integrity and have held an account for many years.
If you want to open a corporate account in a tax haven, the documentation is more extensive.
Generally speaking, in addition to all the documents required to open an account as an individual, you may need to submit the following documents:
- A professional reference. A professional reference is a letter from a lawyer, accountant, or other reputable professional confirming that you are of good character;
- Certified company documents. This includes a copy of the Company’s Certificate of Incorporation, Articles of Association (or equivalent documents), Register of Directors, Members and/or Shareholders, and Diagram of the company’s structure (if there are shareholders of the companies);
- Detailed business plan, describing the purpose of the business, the volume of estimate/revenue, marketing channels and a competition analysis.
In both cases, many of the banks also ask for the Hague Convention Apostille.
WICH ARE THE BEST OFFSHORE BANKS?
We can’t give a straightforward answer as to which are the greatest offshore banks out there without acknowledging how each one of them tends to suit several financial expectations. These expectations are often conditioned by elements like the investor’s capital, its domicile, type of business and investing profile.
Therefore, is more than likely that there is a specific bank ideally made for such objectives. In the end, it all seems to end in Swiss banks, which account for more than one third of the world’s offshore assets. which represent over a third
Which brings out the question: how is it possible that so many entrepreneurs missed that badly and picked old-fashioned offshore locations like Armenia, Moldova or Belize?
The only scenario where we’d call for these countries is one of a low-range budget. The probability for the investment to fail without proper in-situ guidance is enormous, so it would be indescribably risky to go all in in these places.
Worst case scenario? These banks will literally refuse to give back the investor’s money.
HOW DO I KNOW I CAN TRUST MY OFFSHORE BANK?
As with any other financial operation, performing a thorough research of an institution’s reliability is fundamental when avoiding risks. When it comes to picking the best offshore bank, the rule stays the same.
You could base your preferences on several international rating systems such as the Tier One Capital Ratio which punctuates the ability a bank has of basically not letting you down nor doing anything illegal.
Amongst the crucial elements to assess when background-checking a particular offshore banking institution, there is the level of safety and reliability it offers its customer, the historical financial stability of the company throughout time, and the overall socio-political stability of the country in which it is located.
That’s why we tend to recommend clients to trust private banking rather than banks toying with derivatives and lending your money away. Private banking is, and will always be, the smart choice.
Of course, if following traditional modus operandi, you could go with the big ones (UBS, HSBC, Barclays, Credit Suisse, BNP Paribas, Unicredit, to name a few), and feel safer. However, there is no indication that the size of the bank is proportionate with its levels of safety.
Moreover, is much more common to see cases of extortion amongst international banking institutions. Even the U.S. Department of Justice is known for blackmailing banks from Switzerland holding billions in American assets. Such an action forced these banks to share the names of almost 5000 American clients.
Therefore, trusting a small private bank seems like the right call. Make sure the institution is well-funded and that is located in a stable country like, well, Switzerland. It’s important that such a bank doesn’t hold representation in foreign countries, as the legislation will vary.
Only a few banks in the European Union and in the USA can reach 10%. Year after year, Switzerland, Liechtenstein and Singapore consistently have a Tier One Capital Ratio of over 20%. This makes these banks the most secure banks in the world.
CAN I OPEN AN ANONYMOUS BANK ACCOUNT?
It’s important to highlight that currently, there aren’t banks out there offer outmost secrecy about its clients operations. Both the Automatic Exchange of Information (AEOI) and the Common Reporting Standards (CRS) are responsible for it, and explain why we say that any proper offshore institution is being regulated in accordance to international legislation. You should never trust a financial provider who offers anonymous bank accounts in countries like Armenia, Bosnia or Belize, assuring you won’t pay taxes without asking questions. Such an offer is a scam.
One should never trust in a banking institution that is not interested in collecting any type of information about my money and its origin. Such banks are more than likely entangled with crime-related money and would probably be prosecuted by financial authorities. If you don’t participate in illicit activities but still trust these types of banks, you would go down when they fall as well.
There is a stigma when it comes to safe banks all over the internet, about how these institutions are just arrogant and too sophisticated. However, all of that bureaucracy is absolute crucial to guarantee the safety of all the assets of its clients. It’s much more convenient to undergo through these boring processes than to neglect the process and ignore the jeopardy of receiving potential criminals. To enter the international world of finances, you must be screened by serious institutions, there’s no alternative!
WHAT ARE THE COSTS ASSOCIATED?
The costs of opening, closing and maintenance of this type of structure vary greatly depending on the institution chosen to do it. But from everything I have seen, for simple structures in the Caribbean, an estimate for the opening cost is between $500 and $3,000 and the annual maintenance between $1,000 and $3,000. For more sophisticated companies, the costs can be much higher. As for the minimum initial capital needed to begin, it can range from as little as $1,000 in modest locations to over $1,000,000 for the most prestigious private banks in the world.
Centurion Capital is familiar with the offshore banking business, private banking and works with all the major offshore banks. If you would like more information about offshore banks, please contact us, we have the right know-how.
Alternatively if you want to “do it yourself” you could download our e-book guide “Offshore Banks: The Secret Ultimate Guide”, where you will find a complete guide with information on:
- How to open an offshore account;
- What are the best countries;
- Which banks that give the highest interest rates;
- How to have a regular and 100% legal foreign bank account;
- A list of the best offshore banks and financial institutions in the world with contacts, emails, phone and conditions to currently open an account.
Click here to download the guide.
Warning: The content of this article does not constitute legal or tax advice. It is provided for general informational purposes only and not for the purpose of offering any warranty or guarantee. As laws change frequently, personalized professional advice is absolutely necessary.
Article written by: Fabrice Barra is a cosmopolitan entrepreneur, lawyer, fiduciary and author, one of the world’s leading experts on offshore strategies, corporate haven, international investments and global mindset lifestyles. He is the personal trusted advisor of well-known entrepreneurs, UHNWI, Forbes Global 2000 companies, professional sportsmen, aristocrats, celebrities, investors, people with a net wealth of 7- to 8- or more figures, and he has access to a network of influential people around the world.